The route to more women on supervisory boards: For an intelligent quota instead of inflexible requirements

Federation of German Industries event at the Representation of the Land Baden-Württemberg to the European Union / Brussels

27 November 2012

Ladies and Gentlemen,

I am very pleased to be able to speak to you tonight here at the regional representation of Baden-Württemberg. I do not need to tell you that we are currently facing major challenges in Europe: the economic and financial crisis, the debate on the European budget, and the important question of the impact on growth in the coming years.

I am sure some of you are wondering if this is really the right time to introduce statutory quotas for women across Europe. Is this really the right time for the EU to make further demands on industry?

My reply would be: should we leave an important issue such as equal rights for men and women to one side just because we are experiencing a crisis? We must not use the crisis as an excuse for dodging our responsibilities when it comes to important social policy issues, especially when they are also of economic importance. These are issues, moreover, with respect to which the EU Treaties have conferred powers on the Commission and set clear targets for the entire EU for more than 50 years.

As far back as 1957, in the Treaty of Rome, the Member States adopted a specific legal provision, the then Article 119, to implement equal treatment for men and women in the emerging Common European Market. The central issue at the time was equal pay for equal work. This principle is still in force under the European Treaties and can be invoked by any worker in private employment.

Interestingly, the background to this provision was mainly economic. The Member States and in particular France wanted to eliminate distortion of competition between businesses established in different Member States. France had adopted national provisions on equal pay for men and women much earlier and was afraid that a cheap female workforce in other countries (in particular Germany) could put French businesses and the French economy at a competitive disadvantage owing to their lower labour costs.

Today the equal treatment of men and women in the European economy is provided for across Europe for both economic and social reasons and has been further developed by the Member States from one Treaty reform to the next. The principle of equal treatment for men and women is operationalised today by the Treaty on European Union in its Article 3, the Treaty on the Functioning of the European Union in its Articles 8 and 157 and the European Charter of Human Rights in its Article 23. Equal treatment for men and women is therefore an integral part of the economic constitution of the European Union, which is rightly defined by Article 3(3) of the Treaty on European Union as a 'social market economy'.

As early as 1976 the European Court of Justice decided that the principle of equal treatment enshrined in the EEC Treaty should have a social aim in addition to its economic aims. The provision contributed to social advances and to improving living and working conditions. Economic and social aims are therefore two sides of the same coin when it comes to equal treatment for men and women.

On the basis of the European Treaties, the European legislator has adopted numerous Directives in the area of equal treatment since the 1970s. I would like to single out as exemplary here the Directive adopted in 1976 on access to employment and the EU Directive agreed in 2011 concerning maternity and pension benefits for the self‑employed.

So you see, ladies and gentlemen, equality has been the work of the European Union for decades, is anchored in the Treaties and has made a lasting mark on economic and social reality in the Member States.

Now I do not want to just look back at the past with you, I want to concentrate on the present and maybe also have a little look at the future. Because the issue of a quota for women in industry is under discussion. It is an issue that mobilises people. And, let's be clear about this, it also polarises them.

The discussion about a European Commission proposal was already underway long before we even submitted the text of the Directive. Yet almost all proponents and detractors agreed long ago on one crucial matter - we need more women in industry’s top jobs. The disagreement is about ‘how’. Some wanted a quota rule on Norwegian lines: 40% as a fixed quantitative requirement subject to strict sanctions, including the obligatory winding-up of companies that do not fill the quota in time. Others wanted to leave the advancement of women onto supervisory boards to self-regulation.

On 14 November, the European Commission adopted a draft EU Directive after wide‑ranging public consultations and detailed legal, economic and social verification. Prior to that we looked in detail at experiences in the 27 EU Member States, our neighbouring countries and numerous businesses.

At this point I would like to thank the BDI for the help it and its member companies have given us in recent months with plentiful and remarkably detailed feedback, enabling us to develop a very comprehensive picture of the reality for companies and the opinion of German industry.

The draft the Commission has now adopted is a compromise between the opponents and proponents of quota rules. It is often said the truth lies somewhere in the middle. And I think we have managed to avoid extreme approaches to this difficult subject. Instead we have provided sensible and feasible solutions that have good chances of succeeding in significantly increasing the proportion of women in top industry jobs by 2020.

I would like to make it clear right now that the draft Directive is a joint project pursued by me as the European Commissioner for Justice and five other Commissioners who all have economic portfolios: Vice-President Tajani (responsible for Industry and Entrepreneurship), Vice-President Almunia (responsible for Competition), Vice-President Rehn (responsible for Economic and Monetary Affairs and the Euro), Mr Barnier (responsible for the Internal Market and Services) and Mr Andor (responsible for Employment). This highlights the importance of the matter for other areas of the Commission’s work too.

There has already been much public debate about the draft Directive. Unfortunately I cannot help but note in current discussions that people are often not clear about what is actually in the Commission's proposal. Is it a binding quota or not? Isn't all this a form of discrimination against men? Wouldn't it be better for the Member States to make their own decisions about quota rules? These are all questions that you too have probably been asking yourselves.

I am here today to provide answers, to explain why we opted for an intelligent quota and against the sledgehammer approach. We want sensible results, not aggressive regulation. Our draft Directive therefore smoothes a clear and sensible path – but one that leaves the political process in the Member States and the companies concerned considerable room for discretion in putting it into practice.

Scope

I would like to begin by telling you which companies would actually be affected. The draft is aimed only at large companies that are listed on the stock-exchange and whose supervisory boards comprise less than 40% of the under-represented gender. In the entire EU around 5000 companies will be affected, in Germany it will be around 720.

Small and medium-sized enterprises with fewer than 250 employees will be specifically excluded, so a craft enterprise in Berlin will be as little affected as the small and medium-sized enterprise in the Swabian Alb that the German Foreign Minister wants to protect from the EU quota for women. Don't worry, Mr Westerwelle, as far as SMEs are concerned I have every confidence that you will enforce equal rights at national level!

Qualifications talk

And don’t be afraid of having to appoint token women on the basis of their gender just to meet the requirements. This will not happen with the European Commission’s proposal.

Our proposal for a quota is not only gender-neutral in that it refers to the ‘under‑represented gender’, even if in coming years it will de facto mainly benefit women. It focuses mainly on qualifications.

If a candidate for a supervisory board position of the under-represented gender is as well qualified as a candidate of the over-represented gender, the candidate of the under‑represented gender must be given priority. This continues to be the case until the under-represented gender has reached 40% representation on the supervisory board. However, the under-represented gender does not have to be appointed preferentially in every case. The draft Directive, in accordance with the case law of the Court of Justice, expressly provides that an individual assessment can also lead to the other candidate being selected. And an individual assessment must be carried out each time. As you can see, the EU Quota Directive does not regulate the specific selection of one particular person. Who is appointed or selected is still decided by the relevant body within the company.

So the new EU Directive does not provide for a fixed quota. Instead it offers a procedural quota with saving clause. Of course, the procedure was not prescribed just for the sake of it. The Directive also provides the legally binding target of 40% of board members being women. The deadline for this is generous. The 40% target is to be achieved by 2020. Public undertakings have until 2018.

It is our aim to increase the frequency with which qualified women are included in the selection procedure for potential supervisory board members. That there are enough sufficiently well-qualified women is not an issue. 60% of university graduates are women and they often achieve better exam results than men. Enough women with relevant professional experience have been working in German and European companies for a long time.

A survey held by the Bundesverband Deutscher Unternehmensberater [Federation of German Management Consultants] shows that around a third of personnel consultants believe that the current debate on introducing quota rules in companies has already led to companies looking increasingly for qualified women to fill vacancies.

Reputable business schools in Europe have drawn up a list of board-ready women who meet the requirements for management positions in large companies on the basis of their professional experience and qualifications and could be called to serve on company boards. By December this year there will be 7 500 women on this list. A database of these board-ready women will be made public on 12 December.

The fact that not enough of these women hold senior management positions in our industry shows that we are leaving great potential unused. We can no longer afford to do this.

Subsidiarity and Proportionality

From Germany I hear concerns that the European Commission is going too far and is disregarding the principle of subsidiarity. I am certain that this is not the case. The Commission has left the Member States a lot of freedom in many points of the Directive.

Let’s go through it together. Sanctions for infringements must be proportional and act as a deterrent, but their precise form is not prescribed by the EU.

Moreover, Member States can decide that companies in which the under-represented gender makes up less than 10% of the staff will not be affected.

EU Member States that have already taken other, equally effective measures to achieve the 40% quota target before the Directive enters into force will not have to apply the new procedural quota and can continue to follow their own route.

Member States can also stipulate that the Directive’s target has also been reached when the quota of women on a supervisory board is less than 40% if the under-represented gender makes up a third (33%) of both governing bodies, i.e. 33% on the board of directors and the supervisory board.

And, as soon as visible progress has been made, the EU legislator will take a step back. Our Directive is therefore limited in time and will expire in 2028.

So you see, the Quota Directive is not over-regulation, it is a sensible, careful, well‑balanced route.

At the moment we cannot get away from a common European benchmark, and this does not contradict the principle of subsidiarity either. Not only do many studies point to the economic value of balance in the boardroom. It is also a question of having the same framework conditions for large companies. It is in their interest that they and their competitors in Europe are not exposed to a mosaic of quota rules.

Many Member States already have very different models for improving equality. 11 EU countries have no rules at all. The DAX30 companies in Germany have applied self‑regulation, but with 15.6% women on their supervisory boards have only achieved the European average.

The problem was recognised a long time ago.

The EU Institutions - the Council in various recommendations since the 1980s, the European Parliament in numerous resolutions, and the Commission - have urged the Member States to do more to ensure an appropriate gender balance on the governing bodies of companies. So it is high time for a European Directive.

Ladies and Gentlemen,

You are all familiar with the German quota debate. If you look at the Commission’s proposal in detail, then you will probably see that it readily fits into the German context. Take the Commission’s proposal for a flexible quota for the proportion of women on company boards. According to this, companies would set their own targets for 2020 and then report annually on their progress. We are acting on ideas that you are familiar with from the German women’s minister, Kristina Schröder, for instance. Or take Hamburg's application, adopted by the Bundesrat, for a legal quota on supervisory boards that goes above and beyond the Commission's proposal in some areas.

So you see, the debates at European level and in Germany on this subject are closer to each other than it might have seemed.

Legal aspects

Of course, I am aware of the BDI’s position, which you presented to Mr Barroso in your letter of September 2012. And of course the draft Directive as it now stands was not known at the time. But I would still like to tackle the question you raised of the quota rules’ conformity with fundamental rights.

We have investigated this matter particularly thoroughly, as you can see from our impact assessment.

The fundamental rights set out in the EU Charter of Fundamental Rights played a particular role in our analyses. I should mention in particular the fundamental right to equality between men and women in all areas, but also the fundamental right to conduct a business and the right to property.

A quota is of course a restriction on the freedom to conduct a business and the right to property because the right to decide who should control a business is an expression of the right to conduct a business. The quota also touches on the shareholders' right to vote and as a result their right to property.

But no fundamental right is absolute. Fundamental rights can be restricted and often have to be restricted to achieve a balance between competing fundamental rights. This is provided for both in the Charter and the German constitution.

And both EU law and the German constitution expressly allow for affirmative action so that equality becomes a reality rather than remaining an empty letter. Put simply, specific allowances can be made for the disadvantaged gender if there is no other way. For this reason there are already equality laws in Germany to increase the proportion of women in the civil service.

At EU level there are also already instruments that touch on the freedom to conduct a business. I am thinking of the example of the laws on social protection, health and safety and environmental protection. In Germany there are additional special provisions for worker involvement. These restrictions on the freedom to conduct a business are consistent with fundamental rights, as is the proposed quota rule.

Ladies and Gentlemen,

I am convinced that the quota, in the sensible way proposed by the Commission, will not damage companies, it will help them. A whole series of scientific studies suggest that companies with more women on their governing bodies may be altogether more economically effective. These studies come from recognised actors of the business and finance world such as Deutsche Bank, McKinsey, Ernst&Young and Crédit Suisse. And there are women who are qualified for a position on the governing bodies.

I would like to recommend, if you haven't already done so, that you read the draft Directive yourselves. If you do, you will see that the Commission wants to reach an ambitious target in a very carefully balanced way leaving Member States and companies ample room for manoeuvre.

I am sure we have found a clever solution and are on the right track. The intelligent procedural quota from Europe will ensure that talent is put to good use, benefiting both business and, indeed, the EU as a whole.